COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Council Directive laying down rules relating to the corporate taxation of a significant digital presence Proposal for a Council Directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services
Date: 2018-03-21
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: corporation tax, digital single market, digital technology, establishment, provision of services, tax harmonisation, tax system

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   EUROPEAN COMMISSION  Brussels, 21.3.2018  SWD(2018) 82 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document  Proposal for a Council Directive laying down rules relating to the corporate taxation of a significant digital presence  Proposal for a Council Directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services {COM(2018) 147 final}  - {COM(2018) 148 final} - {SWD(2018) 81 final}  
 
 
Executive Summary Sheet 

Impact assessment on a Fair Taxation of the Digital Economy 

A. Need for action 

Why? What is the problem being addressed?  
Corporate taxation aims to tax profits where the value is created, but the current international tax framework was 
designed for the traditional economy. It is unable to take account of new modes of value creation in the digital 
economy,  which  require  less  physical  presence  and  where  user  contributions  and  intangible  assets  play 
significant roles. Public budgets and social fairness are affected. In response, an increasing number of Member 
States are taking unilateral measures which risks fragmenting the Single Market.  

What is this initiative expected to achieve?  
First,  the  initiative  is  expected  to  protect  the  integrity  and  proper  functioning  of  the  single  market.  Second,  it 
intends to ensure that Member States' finances are sustainable and national corporate tax bases are not eroded 
by  digitalisation.  Third,  it  will  contribute  to  preserving  social  fairness  and  a  level  playing  field  between  all 
businesses. 

What is the value added of action at the EU level?  
As the problem is about the international allocation of taxing rights, it cannot be comprehensively addressed at 
Member State level. In addition, EU level action would avoid the fragmentation of the Single Market, new barriers 
to business or potential loopholes which would result from uncoordinated action by different Member States.   

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
First, a comprehensive solution is examined. The main options:  

Option 1: Amend the rules for the Common Consolidated Corporate Tax Base proposal (CCCTB);  
Option 2: Directive on digital permanent establishment and profit allocation principles, with adjustments to the 
CCCTB;   
Option 3 (preferred): Option 2 plus a recommendation to change the rules vis-à-vis third countries.  

Second,  as  a  reform  of  corporate  tax  rules  will  take  time  and  in  order  to  avoid  the  adoption  of  unilateral 
measures by Member States, a interim solution is also considered. The preferred interim solution is a Directive 
on a common system of a tax on certain digital activities.   

Who supports which option?  
Comprehensive  solution:  14  out  of  21  national  tax  authorities  and  58%  of  the  446  respondents  to  the  public 
consultation believe that the comprehensive solution can best address the current problems.  
Interim solution: 10 out of 21 national tax authorities and 53% of the public consultation respondents believe that 
the "tax on revenue from certain digital services" can best address the current problems. 

C. Impacts of the preferred option 

What are the benefits of the preferred option (if any, otherwise main ones)?                                       
Comprehensive  solution:  The  solution  would  improve  the  perception  of  fairness  for  citizens  by  ensuring  that 
large companies with significant digital activities do not escape their taxes in the EU. Businesses would benefit 
from a more level playing field as the revision of the rules would remove distortions of competition. National tax 
administrations  would  benefit  from  a  positive  impact  on  public  finances  as  the  solution  will  contribute  to  the 
long-run sustainability of the corporate tax system.  
Interim  solution:  This  would  improve  the  perception  of  fairness  for  citizens  by  ensuring  a  minimum  level  of 
taxation  in  the  EU  for  companies  that  rely  the  most  on  user  contributions  and  data.  By  avoiding  the 
fragmentation of the Single Market, it will provide a stable tax framework for businesses active in the EU.  

What are the costs of the preferred option (if any, otherwise main ones)?  
Comprehensive solution: The measure would increase the regulatory and compliance burden for all businesses 
falling  under the  scope  of the  solution.  National  tax  administrations  would  also  incur  costs  for  implementing 
the new system, notably on IT and staff training.  
Interim  solution:  Large  companies  above  the  thresholds  would  face  additional  reporting  requirements  to 
compute their tax base in the Member States in which they are active. National tax administrations would also 
incur initial costs to implement the new system, notably in terms of IT and staff training.  

How will businesses, SMEs and micro-enterprises be affected?  

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Comprehensive  solution  –  the  measure  would  restore  a  level  playing  field  between  multinationals  and  smaller 
companies  that  are  often  less  digitised  or  less  active  cross-border.  This  would  benefit  SMEs  and 
microenterprises. The measure could increase the regulatory and compliance burden, which may have a larger 
negative impact on cross-border SMEs.  
Interim solution – SMEs would not be affected, as their revenue would not reach the threshold.  

Will there be significant impacts on national budgets and administrations?  
The comprehensive solution would contribute to the long-run sustainability of the corporate tax system and to a 
fairer  distribution  of  tax  revenues.  The  interim  solution  would  raise  additional  revenues  for  national  budgets, 
although the expected additional revenue from the tax would be rather moderate taking into account the narrow 
scope and application of thresholds.  

Will there be other significant impacts?  
The  proposal  is  expected  to  set  out  the  EU's  vision  to  serve  as  an  example  to  influence  the  international 
discussions.  

When will the policy be reviewed?  
The Commission will monitor the implementation of the legal proposal. An evaluation should be carried out five 
years after implementation.  

D. Follow up 

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